Question

During 2016, the Balboa Software Company incurred development costs of $2,000,000 related to a new software project. Of this amount, $400,000 was incurred after technological feasibility was achieved. The project was completed in the middle of the year and the product was available for release to customers on July 1. Year 2016 revenues from the sale of the new software were $500,000 and the company anticipated future additional revenues of $4,500,000. The economic life of the software is estimated at four years. Year 2016 amortization of software development costs should be:

Answer 1

Software development to be recognized = Cost incurred after achievement of technological feasibility = $400,000

Step-by-step explanation:

Useful life = 4 years

Annual amortization = $400,000 / 4 years = $100,000

Period of amortization in 2016 = July 1, 2016 to December 31, 2016 = 6 months

Year 2016 amortization = $100,000 × 6 months/12 months = $100,000 × 1/2 = $50,000